Jim Rickards is a renowned economist and the author of six New York Times bestsellers. Unlike most investors, he’s highly pessimistic about the future of the US economy. In fact, his latest book, The New Great Depression, forecasts decades of economic stagnation in the US.
So, what can investors learn from Rickard’s pessimism? Let’s take a look at 10 top pieces of Jim Rickards investment advice that all investors can learn from!
Jim Rickards Investment History
Jim Rickards is a lawyer, economist, investment banker, and author. Over his 35-year career on Wall Street, Rickards served as a senior advisor for companies such as Citibank, Long-Term Capital Management, and the hedge fund Caxton Associates. Famously, Rickards led the 1998 negotiation with the US Treasury that ultimately resulted in the government bailout of Long-Term Capital Management.
After leaving Wall Street, Rickards became an influential speaker and author on global financial issues. He has written six books over the past decade including Currency Wars: The Making of the Next Global Crisis, The New Case for Gold, and The New Great Depression: Winners and Losers in a Post-Pandemic World.
Jim Rickards Investment Advice
Rickards’ outlook on the market – both in the US and around the globe – is notably more pessimistic than that of most mainstream economists. So, below are 10 tips that Rickards offers for investors to help them stay ahead of a downturn.
1. Look Beyond the Stock Market
While many people equate ‘investing’ with ‘stocks,’ Rickards strongly encourages investors to look beyond the stock market. In his ideal portfolio, stocks make up just 20% of investors’ total holdings. Alternative investments, which “is a mix of private equity, venture capital, fine art, and hedge funds,” make up just as large a slice of Rickards’ suggested portfolio.
2. Don’t Be Afraid to Hold Cash
Another investment that’s often overlooked – but which Rickards recommends – is cash. In fact, Rickards says investors should hold as much as 30% of their portfolio as cash.
The reason? Cash “reduces volatility…and provides optionality in future investments as market drivers become clearer,” says Rickards. In other words, cash is immune to the ups and downs of the market and can be readily deployed when an opportunity presents itself.
3. Get Active When Markets Drop
While Rickards isn’t against passive investing, he does warn investors that it can be dangerous when market conditions take a turn for the worse. “Passive investors are moving in lock-step” with the market, he says. “That can work in a bull market, but it’s disastrous in a bear market.”
By actively investing, you can “be nimble, maintain cash as dry powder [to invest], and look for bargains,” says Rickards. The more flexible you are, the better off you’ll be in a rapidly changing market environment.
4. Cut Your Losses Early
Rickards also tells investors that it’s important to “cut your losses” early and “live to fight another day.” While that might involve swallowing your pride, it’s much better than letting a small loss turn into a gaping hole in your portfolio.
Cutting losers early is particularly important if you’re anticipating a downturn in the market. What looks like a pullback initially could quickly deteriorate into a full-blown crash. By hoarding cash early on, you’ll position yourself to take advantage of bargains.
5. Pandemics Have Lasting Effects
Rickards’ latest book, The New Great Depression: Winners and Losers in a Post-Pandemic World, explored the economic fallout from the COVID-19 pandemic by looking back to pandemics throughout history. Based on his research, “interest rates, employment rates…[take] 30 to 40 years” to recover, says Rickards. “Not 30 months.”
The effect of that is far-reaching and hard to measure. As an example, Rickards points to the Great Depression and the lasting effects it had on the psychology of the country. People who grew up during the Great Depression – and in some cases, their children – kept habits of scarcity for life.
6. The Post-Pandemic Recovery Will Take Decades
Rickards also warns investors that they shouldn’t “believe in the V-shape recovery. Don’t believe it when you hear about pent-up demand,” he says. “We’re probably in another recession right now.”
That has huge implications for the US economy, as businesses are ramping up production and economists are planning on a return to business as usual within the next few years. According to Rickards, investors should be prepared for the effects of the pandemic to hold back investment returns – at least in some sectors or for some assets – for decades.
7. In a Downturn, Look for the Winners
Although Rickards’ predictions for the future might sound gloomy, he’s quick to point out that smart investors can still find opportunities in a downturn. “That’s why the subtitle of [my new] book is…’Winners and losers in a post-pandemic world,’” he says. “We have both.”
To make the most of a recession – whether the one Rickards believes we’re in now or a future market downturn – it’s essential for investors to look for the winners. That means thinking deeply about how peoples’ behavior is changing and being willing to invest in areas that have traditionally been overlooked.
8. Currency Wars Don’t End Quickly
Rickards has also been sounding the alarm about the trade war between the US and China, which originally began as a currency war nearly a decade ago. According to Rickards, “currency wars don’t happen all the time. But when they do, they can last for 15 or 20 years.”
That creates risk for investors, as trade wars can unexpectedly curtail business in a market sector caught in the crosshairs. For Rickards, an ongoing trade war is just one more reason to gravitate towards assets like cash.
9. Be Cautious with Leverage
Although most investors don’t use leverage when investing, everyday investors routinely access leverage to buy real estate. “That’s good if you’re making money,” says Rickards, “but it’s horrible if you’re losing money.”
Rickards recommends that investors keep no more than 10% of their portfolio in real estate. However, it can be easy to shoot above this allocation when buying a home and taking out a mortgage.
10. Think Pessimistically
While most economists and investors are bullish about the long-term growth of the US economy, Jim Rickards is bearish. He points to the lasting effects of the 2008 recession, the COVID-19 pandemic, and the US-China trade war as existential threats to economic growth at home and abroad.
Although it’s too early to tell whether Rickards’ predictions are right, it’s worth looking at things from his perspective. Investors should seriously question whether their portfolio could survive a serious, prolonged downturn, and what changes they would need to make if the “New Great Depression” started tomorrow.
Conclusion: Jim Rickards Investment Advice
Jim Rickards is an influential economist and author who has spent over a decade warning that the golden age of economic growth in the US is coming to an end. While his predictions have yet to be borne out, they’re worth considering when evaluating your investing risk and thinking about the future.